PRINCIPLES OF TAXATION
INHERENT POWERS
PP Police Power
E Eminent Domain
T Taxation
INHERENT POWERS
A. Police Power- the power of the State
to enact laws in relation to persons and
property so as to promote public health,
public moral, public safety and general
welfare of the people.
B. Power of eminent domain- the
power of the state or those whom the
power has been delegated to take
private property for public use upon
paying the owner a just compensation to
be ascertained according to law.
C. Power of taxation- the power of the
state by which the sovereign raises
revenue to defray the necessary
expenses of the government.
SIMILARITIES AMONG THE POWERS
A.They are inherent in the state.
B.They exist independently of the
Constitution
C.They are legislative in nature and
character.
D.They constitute the three methods by
which the state with the private rights
and property.
E.Each presupposes an equivalent
compensation
DISTINCTION AMONG THE POWERS
A. As to benefits received:
1. Police power - no direct and
immediate benefit, only such as
may arise from the maintenance of a
healthy economic standard of
society
2. Power of eminent domain - market
value of the property taken from the
property owner
3. Taxation - equivalent of tax in the
form of protection and benefit
B. As to amount of imposition:
1. Police power- limited to the cost of
the license and the
necessary expenses of police
surveillance and regulation
2. Power of eminent domain- no
imposition, the owner is paid the
fair market value of his property.
3. Taxation- no limit
C. As to relationship to the
non-impairment of obligations clause
of the Constitution:
1. Police power- superior to the clause
2. Power of eminent domain- inferior
to the clause
3. Taxation- inferior to the clause
D. As to purpose:
1. Police power- promote general
welfare
2. Power of eminent domain – public
purpose
3. Taxation – support of government
F. As to persons affected:
1. Police power- community or class of
individuals
2. Power of eminent domain-
individual, as owner of a particular
A. It can only be imposed on specific
properties
B. It involves the taking of property by
the government.
C. The amount imposed has no limit.

property D. The amount imposed depends on

whether the activity is useful or not.
3. Taxation- community or class of
individuals 5. The following are the similarities of
the inherent power of taxation,
1. Which of the following may not eminent domain and police power,
raise money except one:
for the government?
A. Power of taxation A. They are necessary attributes of
B. Police power sovereignty
C. Power of eminent domain B. They affect all persons or the public
D. Privatization of government’s capital
assets C. They interfere with private rights and
property
2. In this power of the state, the
person who is parting with his money D. They are legislative in implementation
or property is presumed to receive a
benefit: INTRO TO TAXATION
A. Taxation
DEFINITION
B. Police power
Taxation is the act of laying a tax, i.e.,
C. Eminent domain
the process or means by which the
D. Forfeiture power
sovereign, through its law making body,
3. Police power as distinguished from raises revenue to defray the necessary
eminent domain: expense of government.
A. Just compensation is received by the
Taxation is a levy or imposition and a
owner of the property
charge.
B. May be exercised by private
individual FUNDAMENTAL DOCTRINES
C. Property is taken by the government
for public purposes. a. Theory of Taxation – The power of
D. Superior to non-impairment clause of taxation proceeds upon the theory that
the constitution the existence of the government is a
necessity and that it cannot continue
4. Which statement refers to police without means to pay its expenses and
power as distinguished from that for this means it has a right to
taxation? compel all its citizens and property
within its limits to contribute.
b. Basis of Taxation - The basis is the ● To control inflation.
reciprocal duties of protection and b. Sumptuary or regulatory purpose
support between the state and its ● To implement the police power of
inhabitants. The state collects taxes the state to promote the general
from the subjects of taxation in order welfare.
that it may be able to perform the
functions of government. The citizens, PRINCIPLES OF A SOUND TAX
on the other hand, pay taxes in order SYSTEM (FAT)
that they may be secured in the a.Fiscal adequacy – this means that
enjoyment of the benefits of an the sources of revenue should be
organized society. sufficient to meet the demands of public
c. Lifeblood Doctrine - taxes are the expenditures.
lifeblood of the Government and their b.Administrative feasibility - this
prompt and certain availability are means that the laws should be capable
imperious (expecting obedience) need. of convenient, just and effective
- the government’s ability to serve the administration.
people depends upon taxation
- Manifestation of lifeblood theory: c.Theoretical justice – this means that
the tax burden should be proportionate
1. Imposition of tax even in the absence to the taxpayer’s ability to pay (ability to
of Constitutional grant. pay principle)
2. Right to select objects of taxation. NATURE (CHARACTERISTICS) OF
3. No injunction to enjoin (or stop) tax TAXATION
collection. 1. Inherent
d. Marshall Doctrine – The power to 2. Legislative
tax involves the power to destroy.
3. Subject to Limitations
e. Holmes Doctrine – The power to tax
is not the power to destroy while the SCOPE OF TAXATION (CUPS)
court sits
1. Comprehensive
PURPOSE OF TAXATION
2. Unlimited
1. The primary purpose is to raise
revenue for government needs. This is 3. Plenary
also called revenue or fiscal purpose.
4. Supreme
2. The secondary purposes
SUBJECTS/OBJECTS OF TAXATION
a. Compensatory purposes
● To reduce excessive inequalities -persons
of wealth.
● To maintain high level of -property
employment.
-acts, rights, privileges c. Fiscal adequacy
d. Debt restricting
USUAL REACTION TO TAX
2. Which one of the following is not
1. Self preservation characteristic of the state’s power to
2. Avoidance tax?
a. It is inherent in sovereignty
3. Minimization b. It is legislative in character
c. It is based on the ability to pay
4. Evasion d. It is subject to constitutional and
inherent limitations
BENEFITS OF TAXATION
3. What basic principle of a sound tax
system is met when congress
evolves a progressive system of
taxation as mandated in the
constitution?
a. fiscal adequacy
b. theoretical justice
c. administrative feasibility
STAGES OF TAXATION d. balanced budget
1. Levy 4. Which of the following is not basic
2. Assessment principle of a sound taxation system?
a. It should be capable of being
3. Collection effectively enforced.
b. It must be a progressive tax.
LEGISLATURE SHOULD DETERMINE c. It must be sufficient to meet
government expenditures and other
a. The subject matter or object to be
public need.
taxed.
d. It should be exercised to promote
b. The purpose of the tax so long as it is public welfare.
for public purpose.
5. Statement 1: the power of taxation
c. The amount or rate of the tax. is inherent in sovereignty being
essential to the existence every
d. The manner, means and agencies of government. Hence, even if not
collection of the tax. mentioned in the constitution the
state can still exercise the power.
e. The exemptions from the imposition
Statements 2: taxation is essentially a
1. Under this basic principle of a legislative function. Even in the
sound tax system, the government absence of any constitutional
should not incur a deficit: provision, taxation power falls to
a. Theoretical justice congress as a part of the general
b. Administrative feasibility power of law making.
a. Both statements are false
b. Both statements are true
c. On statement 1 is false
d. Only statement I is true
6. Which of the following statements
is not correct?
a. Taxes may be imposed to raise
revenue or to provide incentives to
certain activities within the State.
b. The State can have the power of
taxation even if the Constitution does
not expressly give it the power to tax.
c. For the exercise of the power of
taxation, the state can tax anything at
anytime.
d. The provisions of taxation in the
Philippine Constitution are grants of
power and not limitations on the taxing
power.
7. One of the following is not a
manifestation of lifeblood theory:
a. Imposition of tax even in the absence
of constitutional grant.
b. No injunction to enjoin tax collection.
c. Right to select objects and subjects of
taxation.
d. Equal protection of law.
8. Which is the best answer? A tax
reform at any given time underscores
the fact that:
a. Taxation is an inherent power of the
state
b. Taxation is essentially a legislative
power
c. Taxation is a power that is very broad
d. The State can and should adopt
progressive taxation
9. The legislative body can impose a
tax at any amount underscores the
legal truism that taxation is:
a. Taxation is an inherent power of the
state
b. Taxation is essentially a legislative
power
c. Taxation is a power that is very broad
d. The State can and should adopt
progressive taxation
10. Upon taxation depends the
government’s ability to serve the
people for whose benefit taxes are
collected, hence, taxes may be
imposed even in the absence of
constitutional grants and collection
of taxes cannot be stopped.
a. Government is a necessity theory
b. Benefits to pay theory
c. Ability to pay theory
d. Lifeblood theory
11. The power of taxation proceeds
upon what theory?
a. Government is necessity theory
b. Benefits received theory
c. Ability to pay theory
d. Severance test theory
12. The basis of taxation is the
reciprocal duties of protection and
support between the State and its
inhabitants.
a. Government is a necessity theory
b. Benefits received theory
c. Ability to pay theory
d. Lifeblood theory
13. First statement: In the exercise of
the power of taxation, the State can
tax anything, at anytime, and at any
amount. Second statement: Taxes
may be imposed not only to raise
revenue, but also to provide
incentives and disincentives to
certain activities within the State.
a. Both statements are correct.
b. The first statement is correct, the
second is incorrect.
c. Both statements are incorrect.
d. The first statement is incorrect, the
second is correct.
14. As a basic principle of taxation,
“taxes must be based on the
taxpayer’s ability to pay” is called:
a. equality in taxation
b. ability to pay theory
c. theoretical justice
d. equity in taxation
LIMITATIONS
1. Distinction between inherent and
constitutional limitations:
a. Inherent limitations are those which
are caused by the very nature of the
power itself.
b. Constitutional limitations are those
which are expressly found in the
Constitution or implied from its
provisions.
INHERENT LIMITATIONS
P Public Purpose
E Exemption from taxation of
government entities
N Non-delegation of power to tax
I International comity
T Territorial jurisdiction
GUIDE: EXCEPTION TO NON-
DELEGATION
a. Delegation to the President to fix,
within specified limits, tariff rates, import
or export quotas, tonnage and wharfage
dues and other duties or imports.
b. Delegation to local governments the
power to create its own sources of
revenues and to levy taxes, subject to
such limitations as may be provided by
law.
c. Delegation to administrative
agencies certain aspects of the taxing
process that are not legislative, such as:
• The power to fix value of
property for purposes of taxation
pursuant to fixed rules.
• The power to assess and
collect taxes.
• The power to perform any of
the innumerable details of
computation, appraisement, and
adjustments, and the delegation
of such duties
GUIDE: INSTANCES OF PUBLIC
PURPOSE
1. Instances of public purpose
a. Financing of educational activities and
programs.
b. Promotion of science.
c. Erection and maintenance of roads,
bridges and piers.
d. Aid for victims of a public calamity.
e. Relief for the poor and unemployed
and to provide for unemployment
benefits.
f. Payment pensions and bonuses for
services rendered by public officers and
employees.
g. The construction of experimental
stations to seek increases of efficiency
in sugar production and the
improvement of living and working
conditions in sugar mills or
plantation.
GUIDE: SITUS OF TAXATION
CONSTITUTIONAL LIMITATIONS
a. Due process of law. “No person
shall be deprived of life, liberty of
property without due process of law
nor shall any person be denied the
equal protection of law”.
1. Any deprivation of life, liberty, or
property is with due process if it is done:
a. Under the authority of law that is valid
or of the Constitution itself; and
b. After compliance with fair and
reasonable methods of procedure
prescribed by law.
2. Procedural due process in judicial
proceedings requires “opportunity to
be heard before judgement is
rendered affecting one’s person or
property.” Due process in taxation
requires:
a. Tax must be for public purpose.
b. Imposed within the territorial
jurisdiction.
c. No arbitrariness or oppression in
assessment and collection.
4. All persons subject to legislation shall
be treated alike under circumstances
and conditions both in the privileges
conferred and liabilities imposed.
5. The Constitution does not require
things which are different in fact to be
treated in laws as though they were the
same.
6. Classification is allowed. It is valid
when:
a. There is substantial distinction.
b. The classification is germane
(relevant) to the issue.
c. The classification applies not only to
existing conditions but future conditions
as well.
d. The classification is applicable to all
members of the same class.
7. There is denial of equal protection in
the following cases:
a. Where an ordinance imposes a
property tax on motor vehicles using the
streets of Manila, such being payable
only by owners of vehicles registered in
the City of Manila but those residing
outside Manila who also use the streets
are not made to share the
corresponding burden.
b. Where a tax provision is enforced
against manufactures of filled milk only,
but not against persons similarly
situated such as manufacturers of
condensed skimmed milk.
b. Power of the president to Veto any
particular item or items in a Revenue
or Tariff bill:
1. As a general rule, under the
Constitution, the President may not veto
a bill in part and approve it in apart. The
exception is with respect to revenue or
tariff bill.
c. Non-Impairment of the obligation
of contracts. “No law impairing the
obligations of contracts shall be
passed.”
1. The obligation of contract is impaired
when its terms or conditions re changed
by law or by party without the consent of
the other, thereby weakening the
position of the later.
d.Non-imprisonment for non-payment
of Poll tax. “No person shall be
imprisoned for debt or non-payment
of poll tax.”
1. The prohibition is against
“imprisonment” for “non-payment”.
Hence, an imposition of a fine (but not
subsidiary imprisonment), or even
imprisonment for any other violation
than non-payment would not be
unconstitutional.
2. Only non-payment of poll tax (or
community tax) is covered by the
limitation. Nonpayment of other
(additional) taxes can validity be
subjected by law to imprisonment.
e. The Congress may authorize the
President to fix tariff rates, import
and export quotas, tonnage and
wharfage dues and other duties or
imposts.
f. Rule of Uniformity and equity in
taxation. “The rule of taxation shall
be uniform and equitable. “
1. All taxable articles or properties of the
same class shall be taxed at the same
rate.
2. A tax is considered uniform when it
operates with the same force and effect
in every
place where the subject may be found.
3. The concept of equity in taxation
requires the apportionment of the tax
burden be, more or less, just in the light
of the taxpayer’s ability to shoulder the
tax burden and, if warranted, on the
basis of the benefits he receives from
the government.
4. To ensure and enhance the equity
objective, the Constitution enjoins
Congress to evolve a progressive
system of taxation
5. Progressive system of taxation means
that tax shall place emphasis on direct
rather that indirect taxation, with ability
to pay as the principal criterion. A
system that places emphasis on indirect
taxes is said to be a regressive tax
system.
6. Equal protection refers more to like
treatment of persons in like
circumstances, uniformity and equity
refer to the proper relative treatment for
tax purposes of persons in unlike
circumstances.
g. No appropriation for Religious
purposes. “Exemption of religious,
charitable or educational entities,
non-profit cemeteries, and churches
from property taxation.”
1. The tax exemption covers property
taxes only and not other taxes.
2. Conveyance (transfer) of exempt
property would be subject to transfer
taxes.
3. The test of the exemption of the
property is the use and not ownership.
h. Non-impairment of the jurisdiction
of Supreme Court in tax cases.
i. Concurrence by a majority of all
members of the Congress for the
passage of a law granting tax
Exemptions.
1. What is exemption from taxation?
a. It is also called Tax holiday
b. Privilege of immunity from a tax
burden of which others are subjected to.
c. The power of taxation carries with it
the power not to tax or the power to
exempt.
d. The general rule, however, is taxation
and exemption is the exception.
e. Strictly construed against the
taxpayer claiming the exemption and in
favour of the State.
f. The exemption must be based on
reasonable grounds.
g. It requires a majority vote of congress
on tax exemption grant.
h. It is personal and cannot be assigned
of transferred by the person to whom it
is given without the consent of the State
given in clear and unmistakable terms.
1. Kinds of tax exemption:
a. Express or affirmative – clearly
provided for in the constitution, statutes,
or tax treaty with other countries.
Examples are:
1. Exemption from real property tax on
real properties used for religious and
charitable purposes by religious and
charitable institutions per the
Constitution.
2. Exemption from the income taxation
of non-profit organizations and
exemption from gift tax of certain
donations per the NIRC.
3. Reciprocity agreements with other
nations intended to minimize tax
burdens of their respective subjects
b. Exemption by omission or implied
exemption. Occurs when a tax is
imposed on certain class of
taxpayers without mentioning the
other class. Those not mentioned are
therefore exemptions by omission,
either intentional or accidental.
3. Tax exemption vs tax amnesty
a. Tax exemption is an immunity from
civil liability only. It is immunity or
privilege, a freedom from a charge or
burden of which others are subjected to.
It is prospective in application.
b. Tax amnesty is an immunity from all
criminal and civil obligations arising
from nonpayment of taxes. It is general
pardon given to all taxpayers. It applies
only to past tax periods, hence of
retroactive application.
1. One of the characteristics of our
internal revenue laws is that they are:
a. Political in nature.
b. Penal in nature.
c. Generally prospective in operation
although the tax statute may
nevertheless operate retrospectively,
provided it is clearly the legislative
intent.
d. Criminal in nature.
2. Which of the following statements
is not correct?
a. An inherent limitation of taxation may
be disregarded by the application of a
Constitutional limitation.
b. The property of an educational
institution operated by a religious order
is exempted from property tax, but its
income is subject to income tax.
c. The prohibition of delegation by the
State of the power of taxation will still
allow the Bureau of Internal Revenue to
modify the rules on time for filing of
returns and payment of taxes
d. The government of taxation is shared
by the legislative and executive
departments of the government.
3. Which of the following has no
power of taxation?
a. Provinces
b. Cities
c. Barangays
d. Barrios
4. Which statement is wrong? A
revenue bill
a. Must originate from the House of
representatives and on which same bill
the Senate my propose amendments
b. May originate from the Senate and on
which the same bill the House of
Representatives may propose
amendments
c. May have a House version and
Senate version approved separately.
d. May be recommended by the
President to Congress.
5. Which statement gives the correct
answer? That a feasibility study need
not look into the taxes of different
political subdivisions of government
which may be alternative sites of the
business because:
a. Provinces, cities and municipalities
must have uniform taxes between and
among themselves.
b. The local taxes of a political
subdivision need not be uniform with the
local taxes of another political
subdivision.
c. Businesses that are subject to
national business taxes are exempted
from local business taxes.
d. Local business taxes may be credited
against national business taxes.
6. A fundamental rule in taxation is
that the property of one country may
not be taxed by another country. This
is known as:
a. International law
b. International comity
c. Reciprocity
d. International inhibition
7. A tax must be imposed for a public
purpose. Which of the following is
not a public purpose?
a. National defense
b. Public education
c. Improvement of sugar industry
d. Constructing a private resort
8. there can be no tax unless there is
law imposing that tax is consistent
with the doctrine or principle of:
a. Uniform in taxation.
b. Due process of law.
c. Non-delegation of the power to tax.
d. The power of taxation is very broad
and the only limitation is the sense of
responsibility of the members of the
legislature to their constituents.
9. Some franchise holders who are
paying the franchise tax are being
required by an amendatory law to pay
the value-added tax, while others
remain subjected to franchise tax.
Which of the following provisions
makes the law unconstitutional?
a. No law shall be passed impairing the
obligations of contract.
b. The rule on taxation shall be uniform.
c. No person shall be deprived of
property without due process of law.
d. None of the above.
10. The City of Manila, claiming that it
can impose taxes under the Local
Government Tax Code, imposed a tax
on banks (in addition to the
percentage tax on banks imposed in
the National Internal Revenue Code).
The banks within the City of Manila
objected for the various reasons
given below. Which would justify the
objection of the banks?
a. The power of taxation cannot be
delegated
b. Uniformity in taxation
c. The rule of double taxation
d. None of these
11. First statement: Our Constitution
does not prohibit double taxation.
Second statement: if double taxation
occurs, the taxpayer may seek relief
under the uniformity rule or equal
protection guarantee.
a. 1st statement is correct, 2nd
statement is wrong
b. 1st statement is wrong, 2nd statement
is correct
c. Both statements are correct
d. Both statements are wrong
12. Which of the following is not an
element of double taxation?
a. Two taxes
b. Same subject matter
c. Same amount
d. Same year
13. May the purpose of a tax be partly
public and partly private without
violating the limitation that a tax must
be for public purpose?
a. Yes. The purpose to be accomplished
by taxation need not be exclusively
public. Although private individuals are
directly benefited (e.g. giving aids to
victims of flood), the tax will still be valid
provided such benefit is only incidental.
b. No. The purpose to be accomplished
by taxation need to be exclusively
public. To benefit private individuals will
be tantamount to deprivation of property
of those who paid the tax without due
process.
c. Yes. The purpose is not important as
long as the use of the tax can be
properly accounted for.
d. No. The purpose shall either be public
or private. It cannot be both.
14. One of the following is not a
public purpose:
a. National defense
b. Building of churches common to all
religions
c. Improving sugar industry
d. Retirement benefits of public officials
15. A taxpayer who had gross
receipts derived from business in the
preceding year did not declare it
when he paid the poll tax. He paid
only basic tax and did not pay the
additional poll tax based on gross
receipts. Will he be imprisoned?
a. No. No person shall be imprisoned for
non-payment of poll tax.
b. Yes. This is a case of tax evasion. Tax
evasion is now a criminal offense.
c. No. Paying the basic poll tax is
enough. The additional poll tax is
discretionary.
d. Yes. Non-payment of poll tax is
punishable by imprisonment.
DOUBLE TAXATION
Double taxation, in its general sense,
means taxing a person, property or right
twice during the same taxable period. In
its general sense, it does not violate the
equal protection and uniformity clauses
of the constitution.
Direct double taxation or direct
duplicate taxation (which violates the
equal protection and uniformity clauses
of the constitution) means:
1. Taxing twice.
2. Within the same jurisdiction or taxing
district.
3. By the same taxing authority.
4. For the same purpose.
5. In the same year( or taxing
period)
6. Same Subject in the territory
*If one of the elements above is
absent, there is indirect double
taxation
CLASSIFICATIONS OF TAXES
a. As to purpose:
1. General/fiscal/revenue – tax
imposed solely for general purpose of
the government, i.e., to raise revenue for
government expenditures (e.g. income
tax, donor’s tax and estate tax).
2. Special/regulatory – tax imposed for
a specific purpose, i.e., to achieve some
social or economic ends irrespective of
whether revenue is actually raised or not
(e.g. tariff and certain duties on imports)
b. As to Authority or Scope:
1. National – imposed by the National
Government (e.g. income tax, estate
tax, donor’s tax, value-added tax, other
percentage taxes, documentary stamp
tax).
2. Local or Municipal – imposed by
municipal corporations (e.g. real estate
tax, community tax)
c. As to determination of amount:
1. Specific – tax of fixed amount
imposed by the head or number, or by
some standard of weight or
measurement. It requires no
assessment other that a listing of
classification of the subject to be taxed
(e.g. excise tax on cigar, cigarettes and
liquors).
2. Ad valohrem – tax of fixed proportion
of the value of the property with respect
to which the tax is assessed. It requires
the intervention of assessors or
appraisers to estimate the value of such
property before the amount due from
each taxpayer can be determined (e.g.
VAT, income tax, donor’s tax and estate
tax)
d. As to rates or graduation:
1. Proportional – tax based on a fixed
percentage of amount of the property,
receipt, or other basis to be taxed (e.g.
VAT, others, and percentage taxes).
2. Progressive – tax the rate of which
increase as the tax base or bracket
increase (e.g. income tax, estate tax and
donor’s tax).

3. Regressive – tax the rate of which

decrease as the tax base or bracket
increase

e. As to Incidence (who bears the

burden):
1. Direct – tax which is demanded from
the person who also shoulders the
burden of the tax or tax which the
taxpayer cannot shift to another (e.g.
income tax, estate tax, donor’s tax).

2. Indirect – tax which is demanded

from one person in the expectation and
intention that he shall indemnify himself
at the expense of another or tax which
the taxpayer can shift to another.

f. As to subject matter or object:

1. Personal/poll/capitation – tax of a
fixed amount imposed on individuals,
whether citizens or not, residing within a
specified territory without regard to their
property or the occupation in which he
may be engaged (e.g. community tax).

2. Property – tax imposed on property,

whether real or personal, in proportion
either to its value, or in accordance with
some other reasonable method cf
apportionment (e.g. real estate tax). LIST OF NATIONAL TAXES

3. Excise – any tax which does not fall Percentage Taxes

within the classification of poll tax or a Income Tax
property tax. This is a tax on the
exercise of certain rights of privileges VAT
(e.g. income tax, estate tax, donor’s tax,
VAT, other percentage taxes). Other Taxes

TAX VS OTHER CHARGES Transfer Taxes

Excise Taxes

Documentary Stamp Tax


NATIONAL TAXES (SPECIAL)
a. Customs duties
b. Sugar adjustment taxes
c. Taxes on narcotic drugs
d. Specific educational fund tax
e. Science fund taxes
f. Energy taxes on aircraft, motorized
watercraft and electrical consumption
g. Travel tax
h. Private motor vehicle ta
SOURCES OF TAX LAWS
S TATUTES
P RESIDENTIAL DECREES
E XECUTIVE ORDERS
C ONSTITUTION
T REATIES
R EVENUE REGULATIONS (DEPT OF
FINANCE)
A DMIN ISSUANCES (BIR RULINGS)
L OCAL ORDINANCES
TAX AVOIDANCE VS TAX EVASION
a. Tax avoidance (tax minimization) is
the use by the taxpayer of legally
permissible methods in order to
reduce tax liability
b. Tax evasion (tax dodging) is the use
by the taxpayer of illegal means to
defeat or lessen the payment of tax.
1. The proportional contribution by
persons and property levied by the
lawmaking body of the state by virtue
of its sovereignty for the support of
the government and all public needs
is referred to as:
a. Taxes
b. Special assessment
c. License fee
d. Penalty
2. In case of deductions and
exemptions on income tax returns,
doubts shall be resolved:
a. Liberally in favour of the taxpayer
b. Liberally in favour of the employer
c. Strictly against the government
d. Strictly against the taxpayer
3. One of the characteristics of tax is
that it is generally:
a. Based on contract
b. Payable in money
c. Assignable
d. Optional
4. Which of the following is not an
example of excise tax?
a. Transfer tax
b. Value-added tax
c. Real Property Tax
d. Income Tax
5. Which of the following
distinguishes tax from license fee?
a. A non-payment does not necessarily
render the business illegal
b. A regulatory measure
c. Imposed in the exercise of police
power
d. Limited to cover cost of regulation
6. VAT, as to rate, is an example of
a. Graduated tax
b. Progressive tax
c. Regressive tax
d. Proportional Tax b. Tax code shall prevail over
PAS/PFRS
7. The distinction of a tax from permit c. PAS/PFRS and tax code shall both be
or license is that a tax is disregarded
a. Imposed for regulation d. The taxpayer may choose between
b. One which involves an exercise of PAS/PFRS or tax code.
police power
c. One in which there is generally no ACCOUNTING PROCESS
limit on the amount that may be imposed
d. Imposed through the provisions of the 2 PHASES
constitution 1. RECORDING PHASE
8. Tax of a fixed proportion of the 2. SUMMARIZING PHASE
value of the property with respect to
which the tax is assessed and RECORDING PHASE
requires the intervention of
assessors or appraisers to estimate 1. ANALYZING- -Gather info from
the value of such property before the source documents
amount due from each taxpayer can
2.JOURNALISING-Recording
be determined is known as:
transactions in appropriate journals
a. Specific
b. Ad Valorem Types of Journal Entries:
c. Special or Regulatory
d. Fiscal 1. General Journal

9. The basic community tax of P5.00 2. Sales Journal

for an individual is a/an
3. Cash Receipts Journal
a. Property tax
b. direct tax 4. Purchases Journal
c. national tax
d. ad valorem tax 5. Cash Disbursements Journal
10. Which is not an essential
Types of Journal Entries:
characteristic of tax?
a. Unlimited as to amount 1. Simple
b. payable in money
c. Proportionate in character 2. Compound
d. regular payment

11. In case of conflict between the

Philippine Accounting Standards or 3. POSTING- Transfer data from journal
the Philippine Financial Reporting to ledger.
Standards: Kinds of Ledgers:
a. PAS/PFRS shall prevail over the tax
code 1. General Ledger

2. Subsidiary Ledger
SUMMARIZING PHASE

1. UNADJUSTED TRIAL BALANCE

2. ADJUSTING ENTRIES

3. FINANCIAL STATEMENTS

4. CLOSING ENTRIES

5. POST CLOSING TRIAL BALANCE

6. REVERSING ENTRIES

UNADJUSTED TRIAL BALANCE

- List of general ledger accounts with

their respective debit or credit balance.

- provide evidence that the total debits in

the general ledger equal the total credits

- prepares accounts for adjustments

ADJUSTING ENTRIES

- Made at the end of each accounting ACCRUALS - income or expense

period precedes cash flow.

- To take up accruals, expiration of 1. ACCRUED INCOME

prepayments and deferrals, estimations
and other events often not signaled by
new source documents.
ADJUSTING ENTRIES
2. ACCRUED EXPENSE
ESTIMATES - Adjusting entries that do
not involve cash flows.

CONCEPTS INVOLVED: 1. DOUBTFUL ACCOUNTS

1. ACCRUAL 2. DEPRECIATION

2. MATCHING ENDING INVENTORY - An adjustment

to set up the year-end physical count of
3. PERIODICITY the inventory.

*applies only to periodic inventory

system

FS PREPARATION

Basic financial statements

a. Statement of financial position
b. Income statement or a statement of
comprehensive income
c. Statement of changes in equity
d. Statement of cash flows
e. Notes and disclosures
CLOSING ENTRIES
NOMINAL → INCOME SUMMARY
NET INCOME OR LOSS → CAPITAL
OR RE
POST CLOSING TRIAL BALANCE
A listing of general ledger accounts and
their balances after closing entries have
been made. The post closing trial
balance is the same with the yearend
statement of financial position, the only
difference is that valuation accounts like
allowances for assets are found in the
credit side instead of being deducted
from the related asset account.
REVERSING ENTRIES
- Last step
- Optional
- For convenience
Applies to:
a. Accrued income
b. Accrued expense
c. Prepaid expense – expense method
d. Unearned income – income method
1. The debit and credit analysis of a
transaction normally takes place
a. before an entry is recorded in a
journal.
b. when the entry is posted to the ledger.
c. when the trial balance is prepared.
d. at some other point in the accounting
cycle.
2. A trial balance may prove that
debits and credits are equal, but
a. an amount could be entered in the
wrong account.
b. a transaction could have been
entered twice.
c. a transaction could have been
omitted.
d. all of these.
3. Which of the following is a nominal
(temporary) account?
a. Unearned Revenue
b. Salary Expense
c. Inventory
d. Retained Earnings
4. A general journal
a. chronologically lists transactions
and other events, expressed in terms
of debits and credits.
b. contains one record for each of the
asset, liability, stockholders’ equity,
revenue, and expense accounts.
c. lists all the increases and decreases
in each account in one place.
d. contains only adjusting entries
5. Adjustments are often prepared
a. after the balance sheet date, but
dated as of the balance sheet date.
b. after the balance sheet date, and
dated after the balance sheet date.
c. before the balance sheet date, but
dated as of the balance sheet date.
d. before the balance sheet date, and
dated after the balance sheet date.
6. A prepaid expense can best be
described as an amount
a. paid and currently matched with debit or credit to Retained Earnings
revenues. is a
b. paid and not currently matched with a. debit of $50,000.
revenues. b. debit of $80,000.
c. not paid and currently matched with c. credit of $50,000.
revenues. d. credit of $80,000.
d. not paid and not currently matched
with revenues.
7. An accrued revenue can best be
described as an amount
a. collected and currently matched with
expenses.
b. collected and not currently matched
with expenses.
c. not collected and currently matched
with expenses.
d. not collected and not currently
matched with expenses. CASH AND CASH EQUIVALENTS
8. Under the cash basis of
accounting, revenues are recorded CURRENT ASSETS
a. when they are earned and realized. An entity shall classify an asset as
b. when they are earned and realizable. current when:
c. when they are earned 1. it expects to realize the asset or
d. when they are realized. intends to sell
9. Pappy Corporation received cash or consume it, in its normal operating
of P13,500 on September 1, 2024 for cycle;
one year’s rent in advance and 2. it holds the asset primarily for the
recorded the transaction with a credit purpose of
to Unearned Rent. The December 31, trading;
2024 adjusting entry is 3. it expects to realize the asset within
a. debit Rent Revenue and credit twelve
Unearned Rent, P4,500. months after the reporting period; or
b. debit Rent Revenue and credit 4. the asset is cash or a cash equivalent
Unearned Rent, P9,000. unless
c. debit Unearned Rent and credit Rent the asset is restricted from being
Revenue, P4,500. exchanged or
d. debit Cash and credit Unearned used to settle a liability for at least
Rent, P9,000. twelve months
10. Big-Mouth Frog Corporation had after the reporting period.
revenues of $200,000, expenses of
$120,000, and dividends of $30,000. LINE ITEMS - CURRENT
When Income Summary is closed to 1. Cash and cash equivalents
Retained Earnings, the amount of the
2. Financial assets such as trading
securities, AFS securities and other
short term marketable securities
3. Trade and other receivables
4. Inventories
5. Prepaid expenses
- so close to maturity
*purchased 3 months or less before
maturity
Examples include Treasury Bills, Bonds
and Notes, Time Deposits, Certificate of
deposits and Bankers Acceptances and
Commercial Papers.

COMPOSITION OF CASH PETTY CASH FUND

a. Undeposited currency and coins 1. IMPREST FUND SYSTEM

b. Petty cash 2. FLUCTUATING FUND SYSTEM

c. Demand deposits REVIEW QUESTIONS PART 1 CASH

AND CASH EQUIVALENTS
d. Undeposited negotiable checks
1. An item that should be excluded
e. Foreign currencies from cash and cash equivalents on
f. Bank drafts the December 31, 2005 balance sheet
of Haydee Company is
g. Money orders
a. A customer’s check denominated in
h. Other short-term funds foreign currency.
b. A check issued by Haydee Company
VALUATION OF CASH on December 30, 2005, but dated
January 10, 2006.
a. Fa – face amount
c. A P1,000,000 time deposit which
b. Cu – current exchange rate matures in 4- months
d. A P100,000 balance in the
c. E – estimated re company’s current account maintained
as a payroll fund.
SPECIAL ITEMS

a. Certified Checks 2. Which of the following is not a

basic characteristic of a system of
b. Bank Overdraft cash control?
a. Use of a voucher system
c. Compensating Balance
b. Combined responsibility for handling
CASH EQUIVALENTS and recording
cash
Characteristics c. Daily deposit of all cash received
d. Internal audits at irregular intervals
- short-term 3. Which is false concerning
- highly liquid measurement of cash and cash
equivalents?
a. Cash is measured at face value
b. Cash in foreign currency is measured
at the current
exchange rate
c. If a bank or financial institution holding
the funds of the company is in
bankruptcy or financial difficulty, cash
should be written down to estimated
realizable value.
d. Cash equivalents should be
measured at maturity value, meaning
face value plus interest
4. If material, deposits in foreign bank
which are subject to foreign
exchange restriction shall be
classified
a. Separately as current asset with
appropriate disclosure
b. Separately as non-current asset with
appropriate disclosure
c. Separately as current asset without
appropriate disclosure
d. Separately as non-current asset
without appropriate disclosure
5. Which of the following statements
in relation to the cash short or over
account is true?
a. It would be impossible to have cash
shortage or overage if employees were
paid in cash rather than by check
b. The entry to account for daily cash
sales for which a small amount of cash
shortage existed would include a debit
to cash short or over account
c. If the cash short or over account has
a debit balance at the end of the period
it must be debited to an expense
account
d. A credit balance in a cash shorty or
over account should be considered a
liability because the short changed
customer will demand return of this
amount.
6. What happens when a petty cash is
in use?
a. Expenses paid with petty cash are
recorded when the fund is replenished
b. Most small amounts are paid from
cash receipts before they are deposited
c. Petty cash is debited when the fund is
replenished
d. Petty cash fund is credited when the
fund is replenished.
7. The petty cash fund account under
the imprest fund system is debited
a. Only when the fund is created
b. When the fund is created and every
time the fund is replenished
c. When the fund is created and when
the size of the fund is increased
d. When the fund is created and when
the fund is decreased
8. Unreleased checks (checks drawn
before the end of reporting period but
held for later delivery to creditors)
a. Shall be treated as outstanding
checks
b. Shall be restored to the cash balance
c. Shall be treated as outstanding
checks if the date is shortly after the end
of the reporting period
d. Shall be treated as outstanding
checks if they are ultimately encashed.
9. Which of the following is not
considered a cash equivalent?
a. A three-year treasury note maturing
on May 30 of the current year purchased
by the entity on April 15 of
the current year.
b. A three-year treasury note maturing 12. Pelilio Company had the following
on May 30 of the current year purchased on 12/31/2021: Cash in bank
by the entity on January 15 P4,500,000 Cash on hand P250,000
of the current year. Cash restricted for addition to plant
c. A 90-day T-bill expected to be disbursed in 2022
d. All of these P3,200,000 Cash in bank includes
P1,200,000 of compensating balance
10. At the end of the current year, an against short-term borrowing
entity had various checks and papers arrangement. The compensating
in its safe. Which item should not be balance is not legally restricted as to
included in cash in the current withdrawal by Pelilio Company. In the
year-end statement of financial December 31, 2021 statement of
position? financial position, what total cash
a. US $20,000 cash (Foreign Currency) should be reported under current
b. Past due promissory note issued in assets?
favor of the entity a. 3,550,000
by the president b. 4,500,000
c. Another entity’s P150,000 check c. 4,750,000
payable to the entity d. 7,950,000
dated December 15 of the current year
d. The entity’s undelivered check BANK RECONCILIATION
payable to a supplier dated December
31 of the current year
Types of Bank Reconciliation
11. Remedyo Company had the
following on Dec. 31, 2021: Cash in • Adjusted balance method
bank – current account 1,250,000
Cash in bank – payroll account • Book to bank method
250,000 Cash on hand 125,000 Cash • Bank to book method
in bank – restricted account for
building construction expected to be
disbursed in 2022 P750,000 Time
deposit, purchased December 15,
2021 and due March 15, 2022 500,000
The cash on hand includes a P50,000
check payable to Remedyo Company,
dated January 15, 2022. What should
be reported as cash and cash
equivalents on 12/31/2021?
a. 1,575,000
b. 2,075,000
c. 1,625,000
d. 2,175,000
CREDIT MEMOS
• Collections by bank
• Interest credited by bank
• Matured time deposits
• Proceeds of bank loan
DEBIT MEMOS
• NSF checks
• Bank service charge
• Authorized bank debits
BANK RECON QUIZZER
1. Shown below is the bank
reconciliation for Ployd Company for
May 2022:
Balance per bank, May 31, 2022
P75,000 Add: Deposits in Transit
12,000 Total P87,000 Less:
Outstanding Checks 14,000 Bank
credit error 5,000 Cash Balance per
Book, May 31, 2022 P68,000 The bank
statement for June 2022 contains the
following data: Total deposits
P55,000 Total charges including an
NSF check Of P4,000 and service
charge of P200 48,000 All outstanding
checks on May 31, 2022 including the
bank credit, were cleared in bank in
June 2022. There were outstanding
checks of P15,000 and deposits in
transit of P19,000 on June 30, 2022.
1. What is the cash balance per bank
on June 30, 2022?
2. What is the cash balance per
books on June 30, 2022?
2. A bank reconciliation is a
a. formal financial statement that lists all
of the bank account balances of an
entity.
b. a merger of two banks that previously
were competitors.
c. statement sent by the bank to
depositor on a monthly basis.
d. schedule that accounts for the
differences between an entity’s cash
balance as shown in the bank statement
and the cash balance shown in the
general ledger.
3. Bank statements provide
information about all of the following,
except
a. Checks cleared during the period
b. NSF checks
c. errors made by the depositor
d. bank charges for the period
4. Bank reconciliations are normally
prepared on a monthly basis to
identify adjustments needed in the
depositor’s records to identify bank
errors. Adjustments on the part of the
depositor should be recorded for
a. Bank errors, outstanding checks and
deposits in transit
b. All items except bank errors,
outstanding checks and deposits in
transit
c. Book errors, bank errors, deposits in
transit and outstanding checks
d. Outstanding checks and deposits in
transit
How much is Mia’s adjusted cash in What is the adjusted bank balance on
bank balance at December 31, 2022? June 30, 2020?
a. 36,050 a. P351,587
b. 36,125 b. P353,927
c. 36,450 c. P358,147
d. 36,525 d. P359,687

Question 1: What is the amount of cash

disbursements per
What is the correct cash in bank balance
book in April?
of DadiGevs on 12/31/2021?
Question 2: What is the cash balance
a. P55,415
per book at April 30,
b. P67,792
2022?
c. P70,229
d. P83,792
9. The cash amount of Boggart
Company showed a balance of
7. As of June 30, 2020, the bank
P4,500,000 before reconciliation. The
statement of Terrybels Trading had
bank statement did not include a
an ending balance of P373,612. The
deposit of P230,000 made on the last
following data were assembled while
day of the month. The bank statement
reconciling the bank balance:
showed a collection by the bank of
• Bank error: credited Terrybels for
P94,000 and a customer’s check for
P2,150 on June 19.
P32,000 returned because it was NSF.
• During the month, the bank charged
A customer’s check for P45,000 was
NSF checks amounting to P2,340 of
recorded on the books as P54,000
which P800 had been redeposited on
and a check written for P79,000 was
the 24th of June.
recorded as P97,000. What is the
• Collection for June 30 totaling
correct cash balance in the cash
P10,330 was deposited the following
account?
month.
A. 4,765,000
• Checks outstanding as of June 30
B. 4,571,000
were P30,205
C. 4,819,000
• Notes collected by the bank for
D. 4,801,000
Terrybels were P8,150 and the
corresponding bank charges were
P50.
What is the cash balance per bank
statement?
a. 1,435,000
b. 1,532,000
c. 1,338,000
d. 1,557,000